This Sheep Is From Bad Stock

Recent reports from the stock markets indicate that infotech companies are sizzling. So much so that in the last three months, much of the BSE Sensex’s upward movement has been attributable to the IT sector alone. With the government also taking more than a cursory interest in IT and assuring all and sundry that it is serious about IT, it is no surprise that IT has suddenly become the bourses’ white knight. All of a sudden IT seems to have caught the fancy of punters as the segment to watch out for, in the near and far term.

That is the good news. The bad news is that several imposters are also making their quick buck, and there does not seem to be any mechanism to prevent that from happening. For instance, one newspaper reported cases of companies which have nothing to do with IT, but are merrily using IT in their names to lure gullible investors into parting with their funds and then making a fast exit at higher share prices. The problem is that despite knowing the names and identities of these companies, there is precious little that either SEBI or anybody else can do on this issue.

This will bring a bad name to the entire IT sector, which is galloping away. For the second time in this decade IT stocks are on the upswing. In 1991-92 also a similar thing happened, except that at that time we had promoters with doubtful antecedents creating a shell IT company (preferably software) and then going for public equity offerings. At that time also, we had warned through these pages the dangers that were inherent. Still, some investors in the primary market ended up losing their money. This time around, the scenario threatens to repeat itself all over again.

Is there a solution? We seem to believe there is, and the solution will emerge if the industry associations put their heads together and create a body that will be responsible for reporting these cases to the concerned law enforcement agencies. This will ensure that not only will the industry be separating itself from the Black Sheep, but will also be doing a service to the potential investors who otherwise may become disillusioned with the IT movement, and may turn their faces away from the benefits of IT.

This is potentially dangerous as not only does it allow some unscrupulous elements to take advantage of the situation in a manner that is unethical, if not downright illegal, but it also taints even the others who are actually delivering on the promise of IT.

The Black Sheep must not be allowed to pull wool over everybody’s eyes. The industry must act.

L Subramanyan
subu@cmil.com



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